Alcatel Head Warns on Profits

The head of telecoms equipment maker Alcatel said on Wednesday his company would have a tough time generating an operating profit this year, sending shares in the French firm to nearly three-year lows.

The remarks by Serge Tchuruk appeared to be more cautious than comments he made as recently as late July, when the company predicted a positive operating result in 2001.

In response, investors bashed the stock back to levels not seen since Tchuruk issued a shock profit warning in late 1998 that wiped 40-percent off the stock's value in one day and did long-term damage to investor confidence in the company.

Other stocks in the sector suffered the same fate as market concerns over the telecoms industry snow-balled.

``As far as operating income goes, we hope to report a positive result this year, but the market is not helping us,'' Tchuruk told an investor conference in Paris hosted by HSBC on Wednesday. ``It's a challenge.''

He said Alcatel was sticking with a forecast for stable turnover in 2001 and positive cash flow, and said he did not expect a significant rise in provisions.

``We have already said that sales should be more or less flat compared with last year. Today I think that objective will be maintained,'' Tchuruk said.

At 7:15 a.m. EDT Alcatel stock, which was already off roughly five percent before the remarks, was quoted down 10.68 percent at 15.14 euros amid a broad thumping of telecoms equipment makers and other tech stocks in Europe.

``This is really bad news,'' said one Paris dealer. ``We were led to believe from comments in July that operating profit would be positive, but now Tchuruk is telling us that will be a challenge. And it's not the first time they've dropped surprisingly bad news on us.''


Alcatel's British peer Marconi saw its own shares slump 18 percent, Ericsson nearly nine percent and Nokia and Siemens over four percent each.

On Tuesday, Marconi issued its second profit warning in two months and Ericsson said it saw no upturn in its markets in 2002.

Marconi fell victim to a rash of selling on Wednesday as analysts slashed their valuations and questioned the company's ability to meet its debt reduction targets.

Alcatel, grappling like its rivals with a slump in the telecoms industry, in July posted a smaller-than-expected decline in pro forma second quarter operating profit to 136 million euros.

But conditions have worsened since then for equipment makers amid stubborn global economic weakness and spending cuts by telecoms operators.

Investment bank Merrill Lynch on Wednesday cut its long-term opinion on Alcatel to ``neutral'' from ``accumulate,'' setting a fair value price of 19 euros and lowering its earnings estimates for this year and next.

Merrill attributed the change to its ``belief that the company's high operational leverage could continue to hurt profitability as carriers cut spending into 2002.''


Alcatel chief Tchuruk took more than a year after his September 1998 profit warning to convince investors to put money back into the stock.

Until then, Tchuruk had been one of the most respected managers in France, enticing big U.S. funds because of his perceived openness and forward-looking corporate practices at a time when most French boardroom dealings were at best opaque.

The company has worked hard at its communication practices since then, and the stock peaked at a life high of 97.15 euros in the heady days of September 2000 as players scrambled for a slice of what was seen as a must-have for any tech portfolio.

Now, that hard-fought confidence has been eroded once again.

``Alcatel historically has had more problems with credibility but there are not many management teams in this industry that have retained much credibility,'' said one technology fund manager.

Markets are now speculating about consolidation within the telecoms sector, with rumors of an Alcatel/Marconi tie-up making the rounds in recent weeks. On Wednesday, Tchuruk dismissed the logic of a cross-Channel merger between the two former titans.

``All those with some sense know that even if we wanted to, it would make no sense,'' Tchuruk said. ``I hope that no one asks me about Marconi again.''